Magellan dumps 11% stake in Guzman y Gomez

Troubled investment manager Magellan has sold its stake in Mexican restaurant chain Guzman y Gomez to a group of high net worth individuals as part of a plan to refocus on its core asset management business.

Magellan on Monday announced it had reached an agreement to sell its 11.6 per cent stake in Guzman y Gomez for about $140 million to a trust fund, which represents a 36.3 per cent premium on its entry price in January 2021.

Magellan has sold its stake in Guzman Y Gomez.

Magellan chair Hamish McLennan said the deal was an “excellent outcome for Magellan shareholders”. The market did not agree, with an investor sell-off pushing Magellan’s stock value down by more than 8 per cent to close at $15.80 per share.

“[Guzman y Gomez] is an outstanding company, however, the sale of our shareholding is consistent with our strategy to focus on our core funds management business,” McLennan said.

The investment was long-touted by Magellan’s chief investment officer Hamish Douglass as having enormous growth potential and was one of three direct investments held by Magellan Capital Partners (MCP).

MCP oversees Magellan’s balance-sheet investments, including a 40 per cent stake in investment bank start-up Barrenjoey Capital, 15 per cent stake in technology company FinClear and, until now, the stake in Guzman.

Magellan said the sale of Guzman was arranged by Barrenjoey Capital Partners with plans to seed an investment trust for high net worth investors. “We remain committed to the long-term success of Barrenjoey as a major shareholder,” McLennan said.

Last March, Guzman y Gomez delayed plans to list on the ASX after Douglass invested $86.8 million in the company, a significant stake that enabled the chain to refit its restaurants.

Douglass has defended MCP’s assets during loss-making periods, predicting the businesses would show profitability over the next three to five years. “You’re going to look back and say they were smart investments,” he said last August.

Morningstar analyst Shaun Ler said MCP had been criticised for creating a “distraction” for management, but he considered the venture as a positive effort to diversify Magellan’s operations.

“If a funds management business just goes around managing funds, it doesn’t help with the competitive advantage,” Ler said. “When Magellan starts to redirect balance sheet to other things – low cost ETFs, investing in quality unlisted assets, it could help the company build up additional income streams.”

During Magellan’s half-year results, interim chief executive Kirsten Morton said the team “remains supportive” of MCP’s three investments and their ability to generate returns. Ler said it was now unclear if the Guzman divestment meant other sales were likely.

Marks recently told this masthead he had plans for the Mexican food chain to expand by more than 30 stores every year over the next 15 years, with most of these in a drive-through format.

While an ASX float has been put on hold twice, Marks said in December last year that a float remained part of its long-term plans. “I love the idea of it. But right now, we’re in no rush,” he said. “The company is very healthy. When the time is right, then we will.”

In a statement, Marks said Guzman y Gomez was continuing to go from strength to strength. “We are pleased that Magellan ha[s] been able to get a strong return on their investment for their shareholders,” he said.

Douglass has been on sick leave since February after a leadership crisis sent the company into turmoil. Magellan’s funds under management and share price have since been in freefall, with latest figures showing the company manages $68.6 billion – down from highs of $113.9 billion mid-last year.

After stepping up as chair in February, McLennan announced Magellan would make no new investments in Magellan Capital Partners and would instead focus on improving asset management, retaining staff, lifting governance and engaging with customers.

Magellan’s asset management business has suffered perpetual outflows, caused by the relative underperformance of its flagship global equities fund. Many institutional clients had investment mandates that specified Douglass remain in the role but there remains no timeframe for when he will return.

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